Here we explain the main technical indicators you may use for binary options trading. The assets offered in the binary options market are the same you’ll see in other markets. This means that binary options traders have access to the same charting data, statistics and analysis strategies that are used by traders in other markets. Every trader knows that there are two types of analysis – fundamental and technical. In a previous post we spoke about fundamental analysis, so now we’ll continue by familiarizing you with technical analysis and how it can be used to predict the market’s behavior.
Technical analysis is entirely based on charting data, spotting repetitive trends and making a speculation based on the information you collected. Technical analysis can be arranged into three small categories:
1. By using and analyzing chart information (candlesticks and patterns)
2. By using price action
3. By using technical indicators
Technical Indicators You Should Use:
- Candlestick Charts
- Open High-Low-Close Chart
- Line Charts
- Bollinger Bands
- Pivot Point
- Trend Line
- Average Directional Index
- Commodity Channel Index
- Relative Strength Index
- Accumulation/Distribution Index
Use of Chart Information
Charting data is relatively easy to read as long as you have some experience and knowledge of how these charts work. By reading the data provided by candlesticks, you can easily predict the future price movement of a specific asset. Candlesticks are the number one helper of every trader, because they can form patters and give you valuable information about past, present and future trends. There are many candlesticks patterns that can be used to predict an asset’s price movement, so don’t hesitate to look for additional information on the web, and to get familiar with all candlestick patterns.
There are also some less reliable candlesticks which are usually used in combination with technical indicators in order to provide a more accurate prediction. As a trader, you won’t need to learn about all candlestick patterns and chart patterns, but it is highly recommended to read about as many of them as you can. This will help you get a better understanding of the way these patterns work, and help you become a more successful trader.
Use of Price Action
The accuracy of technical analysis can be improved by taking advantage of price action analysis. Of course, in order to do this, you’ll need to have access of Level II pricing system. Unfortunately for you, this feature isn’t offered by many brokers, so you’ll need to see if your broker provides access to this helpful function.
By using price action, you can see the trading volume which a specific asset generates. Apart from the total trading volume, you’ll also receive details about the actions of other traders – do they sell the asset or buy it. For example, if many people sell the same asset at the same time, then its price will most probably start going down. If you notice that a specific asset is being traded in one direction, and in large volumes, then it is very likely that its price will follow the direction. If the asset is being bought, then the price will go up and vice versa.
Use of Technical Indicators
Technical indicators aren’t always necessary, but they can help you make better predictions. Most traders prefer to combine them with candlesticks, because they will either support or oppose the opinion you got from candlesticks. There are several types of technical indicators which are split into two categories – trend-seeking indicators and momentum indicators.
One of the problems most traders face when they start working with binary options is that they may not have access to some of the most popular technical indicators and charting tools. This is why it is very important to check your broker’s trading platform and see if it gives you access to the functions you need the most. Make sure that you take full advantage of the tools your broker provides, because with their help you can significantly increase your chances of completing successful trades.